Crypto startups and traditional startups have a lot in common. Both are ventures, both need to develop new products or services, but there are also some key differences between them. Traditional startups are usually funded by VCs or venture capitalist investors, crypto startups largely depend on ICO which is an initial coin offering.
Another major difference between traditional startup and crypto start is the financial structure. Unlike in traditional startups where investors are able to determine an exact valuation of a startup post funding, investors of crypto have no means of metric to know the real value of their investments.
Both are started with a vision to solve a problem and make money, but the way they do this is very different.
Although crypto startups and traditional startups have much in common there are a few key differences.
Funding:
Crypto startups receive funding from crypto investors. These investors usually do not have access or the capital to fund traditional startups, which heavily rely on venture capital firms for financing. Instead, they invest in newer technologies that can potentially grow into the next big businesses at some point down the road.
This is why many ‘new’ investors prefer cryptocurrencies over stocks or bonds because they believe that cryptocurrencies will become more valuable and has a higher ROI than other assets such as real estate or precious metals (e.g. gold).
Valuations:
While valuations may vary depending on where you look at them (i.e., market cap), one thing is clear—it's important that people know what value means before making any purchase decision regarding an asset like cryptocurrency.
In general terms, I'd say there are three types of values: intrinsic value (what something is intrinsically worth); extrinsic valuation (how much someone else might pay for an item); intrinsic-to-extrinsic ratio (how much higher/lower than market price would increase/decrease its own intrinsic value).
In my opinion, there’s a huge mismatch between the intrinsic and extrinsic value in cryptocurrencies and many crypto investors mistake one for the other. The price of a token usually reflects the extrinsic value. The intrinsic value is found in the structure, capabilities and utility of the network.
One of the ways for investors to gauge the value is by looking at how much the token has been worth since its inception and compare that against other cryptocurrencies.
This may not sound like a very accurate method but it is good way to see how the token has performed within the market conditions. Keep in mind that price is not the only determining factor when investing but it’s still a key factor.
Financial Structure
Another major difference between traditional startups and crypto startups is the financial structure. Traditional startups have equity, which can be valued by a metric such as market capitalization or revenue.
Crypto startups normally do not have any equity and generate profits based on the increase in value of their tokens. This has led to some concerns about how feasible it would be for these startups to make money; however, there are ways around this problem.
Crypto startups may choose to sell their tokens at an early stage instead of selling them all at once when they become profitable (which could lead to dilution). They also might choose not sell any tokens at all if they want complete control over how much money comes into their company; in this case, they would need investors who trust that those investors will get their fair share upon exit or acquisition by another company later down the line when there’s more liquidity available for trading purposes (i..e., buying back shares).
Crypto Startups Have Their Own Advantage Over Traditional Startups
While traditional startups are more flexible, they are also more expensive to run. Crypto startups can be launched much faster and at a lower cost because they don't require extensive capitalization or extensive legal requirements.
Crypto startups are also much more secure than their traditional counterparts. Because cryptocurrencies are usually decentralized, there is no single point of failure—no company or individual can control them like banks do with fiat currency payments made through credit cards or checks. This makes it near impossible for hackers to steal one’s funds; instead, hackers would have to compromise multiple computers at once in order for them to access one’s account.
Conclusion
Remember: while crypto startups are still in their early days, they're already laying down important foundations for the future of finance and technology. As more people join in on this exciting (and uncertain) journey—and as platforms like Ethereum, Hive continue to grow—there will be more opportunities for innovation and collaboration in building and growing a crypto startup.
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